Dollar is at risk of a 2.5 trillion 'avalanche' of sales in Asia – Eurizon

According to Stephen Jen, CEO of Eurizon SLJ Capital, the dollar may face massive sales in the amount of $2.5 trillion due to Asian countries' willingness to reduce their dollar reserves.

As the expert believes, Asia's exporters and investors may have accumulated an “extremely large” amount of dollars over the past years, thereby increasing the region's trade surplus with the United States. As trade tensions intensify, some financial market participants in Asia may repatriate some funds or increase their level of protection against a weakening dollar.

The situation could worsen if the Federal Reserve lowers interest rates. According to Jen, this would trigger funds outflows of about $1 trillion from assets denominated in the US currency.

Multi-trillion dollar flows could be accelerated by uncovered long positions that are not hedged against currency fluctuations. Such positions are common among Asian countries with large external trade surpluses, including China, Taiwan, Malaysia, and Vietnam.

As the analyst summarized, there is currently a “significant imbalance” in the world that puts the dollar in a vulnerable position.